The first meeting of the Interim Joint Committee on State Government was held on Wednesday, June 28, 2006, at 2:30 p.m., in Room 131 of the Capitol Annex. Senator Damon Thayer, Co-Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Damon Thayer, Co-Chair; Representative Mike Cherry, Co-Chair; Senators Walter Blevins, Julian Carroll, Ernie Harris, Alice Forgy Kerr, Elizabeth Tori, and Johnny Ray Turner; Representatives Adrian Arnold, Eddie Ballard, Carolyn Belcher, Tim Couch, Danny Ford, Derrick Graham, Mike Harmon, Melvin Henley, Charlie Hoffman, Jimmie Lee, Paul Marcotte, Stephen Nunn, Tanya Pullin, Tom Riner, and Brent Yonts.
Guests: Brian Crall and Christine Wilcoxson, Personnel Cabinet; Chris Corbin, Cabinet for Health and Family Services; John Rogers, Sarah Jackson, and Connie Verrill – Registry of Election Finance.
LRC Staff: Joyce Crofts, Betsy Johnson, Alisha Miller, Karen Powell, Stewart Willis, Erica Warren, and Peggy Sciantarelli.
The meeting began with a brief subcommittee report by Representative Arnold, Co-chair of the Task Force on Elections, Constitutional Amendments, & Intergovernmental Affairs. The Task Force met on June 27, 2006.
Next on the agenda was an update on the Kentucky employees health insurance plan. Representing the Personnel Cabinet were Brian Crall, Secretary, and Christine Wilcoxson, Commissioner of the Department for Employee Insurance. Chris Corbin, Executive Director of the Office of Health Policy, represented the Cabinet for Health & Family Services.
Ms. Wilcoxson and Mr. Corbin presented a status report on the Kentucky employees health plan. Their report was outlined in a handout provided to the Committee. Ms. Wilcoxson discussed current enrollment, a financial review, and prescription drug utilization. Mr. Corbin reported on wellness initiatives, 2006 legislation implementation, and 2007 benefit plan options. Highlights of their report follow.
In summary, as of June 23, 2006, the number of employees/retirees enrolled was 153,449; with the addition of covered dependents, total enrollment was 235,046. The number of employees waiving coverage was 35,648, with school districts accounting for more than 25,000 of this total. As of May 31, 2006, total receipts were $484,604,203. There were medical claims of $203,038,067 and pharmacy claims of $91,606,995, for a claims total of $294,645,062. ASO fees, which are administrative fees paid to the third-party administrator (TPA), totalled $19,563,199. ASO fees of $118,798 for flexible spending accounts are not included in the health insurance fund but are currently being paid from the Personnel Cabinet operating fund. Subtracting total claims, ASO fees, and start-up funding ($28,827,000) from total receipts leaves a current fund balance of $141,568,940 as of May 31. Pharmacy claims are somewhat higher than anticipated, partly due to an increase in ingredient costs. Zocor is the most utilized drug, with more than 7,000 scripts per month. Utilization of generic drugs increased from 48 percent in 2005 to 52 percent in 2006. A smoking cessation program was implemented in April 2006, and an obesity management program is to be implemented this July. Bills enacted by the legislature in 2006 relating to the health insurance program included HB 131 and HB 380 (budget bill). Establishment of plan benefits by administrative regulation is currently in process. The current benefit plans will be offered again for plan year 2007. Possible changes under discussion for 2007 include an increase in co-pays for outpatient services and outpatient diagnostic testing, plus introduction of a new Commonwealth Select plan that will include a health reimbursement account (HRA). Ms. Wilcoxson and Mr. Corbin concluded their report. Secretary Crall pointed out that an increase in pharmacy copays is also being considered for the 2007 plan year but that proposed changes have not yet been finalized.
Upon inquiry by Representative Harmon, Mr. Corbin and Ms. Wilcoxson explained how the proposed HRA for 2007 would work and how it would differ from a health savings account (HSA). Representative Harmon said it would seem that HSAs would be more beneficial to employees than HRAs. He said that he specifically asked about HSAs in a legislative meeting last year and was told—perhaps by Secretary Erwin Roberts—that HSAs would be offered and would not require legislative authorization. Ms. Wilcoxson said that, to her knowledge, only HRAs have been considered. Representative Crall said he would ask that HSAs be given another look. He also said that the Cabinet will revisit the minutes of the meeting referred to by Representative Harmon and respond back to the State Government Committee.
Representative Cherry commented on the relative health of the fund, which is currently showing a $141 million surplus. Ms. Wilcoxson said it is early yet but that there should not be any problems with the funds. She noted that the numbers would begin to decrease some due to the 12 percent reduction in employer premium amount starting in July with the new budget cycle. She said medical claims cost looks good, but she reminded the Committee that there is a 45-60 day lag time for medical claims. She said that although pharmacy claims are higher than expected, she thinks they will even out, based on the utilization of generics.
Representative Cherry said it would seem safe to say that self-insurance at this point is a huge success. Secretary Crall said it is showing indications of success. Noting that the trends are good, Representative Cherry asked why it would be necessary to increase co-pays in 2007 and decrease flexible spending accounts for employees who waive coverage. Mr. Corbin said that, though the trends are within expected ranges, they are still a little high, primarily based on the average higher age of the group compared to other state groups. He said that the proposed incremental increases would help offset potential larger increases that may become necessary in the future. Representative Cherry said that if the figures are still optimistic at the time of the next budget cycle, he believes the legislature may be hesitant about any increases. Secretary Crall said this is a fair observation and that it is important to be able to justify co-pay increases on the basis of experience. He went on to say that the lag in medical claims will absorb some of the fund balance and that year-end figures will not be available for several months into 2007. The higher copays were proposed in anticipation of the future and to ensure protection of the taxpayer, as well as the insured. If there is a balance at the end of the year and the co-payments are higher than they need be, the residual balance would aggregate back to the state and can be used to offset future cost increases. He said that, since this is the first year's experience, the administration would rather be safe than sorry; notwithstanding, the question raised by Representative Cherry will be analyzed over the next few weeks.
Representative Lee said that experience thus far seems to indicate that cost increases in the health insurance program will be well below the nine percent previously forecast. Secretary Crall said that one could cautiously make that case based on current indicators. Representative Lee advised that the administration carefully weigh any planned increases in cost to the employees, especially in view of the fact that their annual cost-of-living increases have long been less than the statutory five percent. He said that any increases should be justifiable on the basis of claims experience. Secretary Crall said that Representative Lee's point is well taken.
Senator Carroll, citing personal experience, expressed concern about plan participants not being informed when drugs become available "over the counter." Ms. Wilcoxson said that this information should be provided by pharmacies. She added that the state group is trying to improve communication to plan members in order to keep them better informed.
Senator Carroll said he recalls that a bill had been introduced to authorize increases in copays in order to balance the budget but that it did not pass, and that similar language had been removed from the budget bill. He questioned what statutory authority permits the copays to be increased. Ms. Wilcoxson said she is not aware of any such language. Secretary Crall said he would examine this question and get back to Senator Carroll.
Senator Harris asked about voluntary dental and vision benefits and the wellness program. Mr. Corbin said he believes that HB 131 (enacted in 2006) required procurement of dental and vision benefits. Ms. Wilcoxson said they are currently working on that RFP (Request for Proposals) with the Finance Cabinet and the Kentucky Office of Insurance but that she is not sure when the RFP will be issued. Ms. Wilcoxson and Mr. Corbin also described the wellness program that is available to plan participants.
Senator Harris asked whether it is anticipated that it may be necessary to require coinsurance instead of copays in future plan years. Mr. Corbin said that this has not been under discussion so far. Ms. Wilcoxson pointed out that the current Commonwealth Essential plan requires employees to pay coinsurance, as will the Commonwealth Select plan option that is to be offered in 2007.
Senator Tori asked who is responsible for notification of formulary changes. Ms. Wilcoxson said that this is the TPA's responsibility and is part of the TPA contract. She said that formulary changes are infrequent.
There were no further questions, and Senator Thayer thanked the speakers. Next on the agenda was a report on campaign finance in Kentucky. Guest speakers from the Registry of Election Finance (KREF) were John Rogers, Chair; Sarah Jackson, Executive Director; and Connie Verrill, General Counsel. Senator Thayer advised the Committee that campaign finance reform is an issue that will be covered over the course of the 2006 Interim.
Mr. Rogers said that at future meetings of the Committee he and his staff will be reviewing suggested changes to campaign finance laws and will share the nine-month study done by the bipartisan Advisory Task Force for Development of the Registry's Legislative Package (ATF). He said today that they will provide a history of campaign finance in Kentucky to highlight what has driven the need for change. He emphasized that the legislature's input and participation is vital to the process. He encouraged committee members to share their ideas with the Registry and to contact KREF any time they have questions or need help. He also introduced other members of his staff who were in attendance.
Ms. Verrill gave a comprehensive historical overview of campaign finance law in Kentucky. In closing, she discussed the findings of Anderson v. Spear, which she said was the most important recent case in Kentucky. She went on to say that this is a good time to take a look at Kentucky's laws and ensure that they are updated to reflect current case law. Several of the provisions in Anderson have not been addressed and are still ruled unconstitutional as written on the books. In addition, issues arising from technological advances are also not addressed in current Kentucky law.
Ms. Jackson said that the changes recommended by the Task Force are good not only for candidates but also the public. She said they lead to transparency—the public's right to know—and further the challenges and goals of campaign finance laws. She said she believes that the discussions in the meetings ahead will provide the basis for making strides in campaign finance law. She also discussed the de minimus standard, one of the ATF recommendations that was embodied in HB 670 [introduced in 2006], which would permit candidates to make refunds of nonallowable funds within 30 days from the date of deposit without penalty.
Ms. Jackson briefly reviewed the "top 10" features of Kentucky's campaign finance laws: (1) ban on corporate contributions; (2) contribution limits; (3) reporting requirements; (4) electronic filing and a mandatory online searchable database; (5) advertising disclaimers; (6) limits on cash contributions; (7) mandatory and random audit function; (8) registration of PACs, executive committees, and caucus campaign committees; (9) disclosure and public records functions of KREF; and (10) candidates' right to loan unlimited amounts to their campaigns—as a result of the Anderson case. Ms. Jackson said that the online searchable database was put into operation in 2002 and is going very well, having already had 200,000 hits. From January 2006 to the present, there have been 50,000 hits. She said that the aforementioned features of Kentucky law lead to greater transparency and that they will be a focus of future presentations to the Committee.
Representative Nunn said he wants to publicly thank the Registry staff for their good work. He also said he would hope that the State Government Committee and its elections subcommittee will continue to consider the proposals of the Advisory Task Force. Senator Thayer said that the State Government Committee will be looking at campaign finance reform during three more meetings. Ms. Jackson said that at the next meeting they will discuss a "roadmap for change" and the "vehicle for change." Topics will include a review of statutes that have been affected by case law, housekeeping challenges of KREF, state versus federal regulation, and responding to the 21st century. She said they will also discuss background, formation, and activity of the Advisory Task Force. The last two meetings will be devoted to the ATF recommendations for simplifying and improving Kentucky's current election finance laws.
Senator Thayer noted that he was a co-sponsor of SB 112 (2005), which repealed public financing of gubernatorial elections. He also pointed out that Representative Arnold sponsored HB 670, which included most of the ATF recommendations but failed to be enacted. He said it has been decided to bring the issue before the full State Government Committee, with the intent to again propose legislation in 2007, a nonlegislative election year.
Representative Arnold said that he and Senator Thayer met with Registry staff prior to the 2006 regular session in order to review the ATF recommendations and that they had agreed that most of the recommendations are good. He said the legislation is badly needed and that he is glad the Committee is working on this issue. He said the recommendations are feasible and that he hopes they will be addressed in the 2007 regular session.
Representative Marcotte asked whether the Task Force had studied the laws and regulations of other states, and Mr. Rogers said they had. Ms. Jackson said that in future presentations they will highlight the research of other states.
Representative Lee commended the Registry. He said the staff is very helpful and that electronic reporting via the "campaign toolbox" has been particularly helpful to him. Mr. Rogers said that the Registry encourages electronic filing. He noted that it can be done either through the Internet or by bringing the data on a compact disc to the Registry offices. Ms. Jackson said they appreciate hearing testimonials like Representative Lee's. Senator Thayer said he also is a big advocate of electronic filing and that it is a tremendous tool.
Business concluded, and the meeting was adjourned at 3:53 p.m.